President Biden delivered his first State of the Union address on March 1, 2022. During his address, Biden mentioned private equity backed nursing homes, commenting on the perceived decline in quality and increased costs associated with private ownership. A fact sheet later released by the White House noted that private equity investment in nursing homes has risen from $5 billion to more than $100 billion over the last two decades. The administration added that it intends to initiate an examination of whether private equity ownership results in a lower quality of care.
Nursing homes are attractive to private equity (“PE”) firms primarily for their consistent returns and the perpetual need for senior care. Given President Biden’s comments and the fact sheet released by the White House, there may be some belief that PE ownership is inherently bad. Of course, this is not necessarily so. Chris Orestis, Certified Senior Advisor and President of Senior Advocacy for Retirement Genius, commented though PE firms prioritize profit, more research is necessary to validate claims that the outcomes are substandard care. He reiterated, "No private equity firm is buying a nursing home so they can have terrible outcomes and kill people," he said. "It's not a straight shot to ill-gotten gains and nefarious intent." Orestis pointed out that PE firms only own roughly 5% of the total nursing home beds nationally, meaning the problems touted by President Biden might have a different source.
Nursing homes owned by PE firms are subject to the same licensing and inspection standards as any other senior care facility. Orestis opines that the real problem with nursing homes is not PE firms, but rather lack of quality staffing and low Medicaid reimbursement rates. Biden’s plan for nursing homes addresses the former problem by establishing a minimum nursing home staffing requirement. However, the fix may not be that easy, given the driver of the current nursing home staffing shortage is the COVID-19 pandemic. The latter problem, however, proves difficult as reimbursement rates by The Centers for Medicare & Medicaid Services (CMS) for nursing homes is one-third below private market value of the same bed/service.
President Biden plans to push for increased disclosure requirements for nursing home owners, which he hopes will increase transparency and patient safety across the board. In addition, the Biden administration will examine the relationship between PE firms and nursing homes, and the subsequent quality of care. This issue will likely see enhanced scrutiny, congressional action, and new CMS mandates this session.
The politically savvy focus on PE firms sounds less impactful than the overall impact that mandatory staffing and other onerous regulations will certainly have on the entire long-term care industry. Indeed, the Biden administration's signaling of concerns with small-player PE firms will undoubtedly result in increased government regulation of the long-term industry as a whole. An industry already among the most regulated industries in the United States (yes, right up there with nuclear power plants) can ill afford even more costly regulations in the face of low Medicaid reimbursement rates and what many industry experts' opine are emergency-level low workforce staffing issues.
